* Canadian dollar at C$1.2693, or 78.78 U.S. cents
* Bond prices higher across a flatter yield curve
TORONTO, Aug 9 (Reuters) - The Canadian dollar weakened
against on Wednesday its U.S. counterpart as worries about
increased U.S.-North Korea tension weighed, offsetting higher
oil prices and stronger-than-expected domestic housing data.
President Donald Trump's warning that North Korea faced
"fire and fury," and Pyongyang's threat of possible retaliation,
drove investors out of stocks and into the yen, Swiss franc,
gold and government debt.
Commodity-linked currencies, such as the Canadian dollar,
which are sensitive to global trade, also lost ground.
At 9:08 a.m. ET (1308 GMT), the Canadian dollar was
trading at C$1.2693 to the greenback, or 78.78 U.S. cents, down
0.2 percent.
The currency traded in a range of C$1.2666 to C$1.2708. It
touched on Monday its weakest in three weeks at C$1.2715.
Canadian housing starts rose in July to a
seasonally-adjusted annual rate of 222,324 from June's upwardly
revised 212,948, data from the Canada Mortgage and Housing
Corporation showed. Economists had expected a 205,000 annual
rate.
The value of Canadian building permits unexpectedly rose in
June, up 2.5 percent, on increased plans for commercial
buildings, separate data from Statistics Canada showed.
U.S. crude prices were up 0.92 percent at $49.62 a
barrel ahead of a U.S. inventory report, which is expected to
show crude stocks dropped for a sixth week. Oil is one of
Canada's major exports.
A U.S. proposal for Mexico and Canada to vastly raise the
value of online purchases that can be imported duty-free from
stores like Amazon.com and eBay is emerging as
a flashpoint in an upcoming renegotiation of the NAFTA trade
deal.
Canadian government bond prices were higher across a flatter
yield curve in sympathy with U.S. Treasuries as investors bought
safe-haven assets. The two-year rose 5 Canadian cents
to yield 1.231 percent and the 10-year climbed 46
Canadian cents to yield 1.881 percent.
The gap between the 2-year yield and the 10-year yield
narrowed by 2.8 basis points to a spread of 65 basis points, its
narrowest since July 24, as longer-dated bonds outperformed.
(Reporting by Fergal Smith; Editing by Nick Zieminski)